Annual Report
  of the PRI Initiative

The PRI is an investor initiative in partnership with UNEP Finance Initia...
n   | PRI Annual Report | 2009 | Foreword from the Executive Directors of UNEP and the UN Global Compact

Moving furthe...
Message from the Chairman | PRI Annual Report | 2009 |   1

Responsible investment
more relevant than ever

2   | PRI Annual Report | 2009 | Contents


                                            Foreword from the Exe...
About the report | PRI Annual Report | 2009 |   5

About the report

6     | PRI Annual Report | 2009 | The PRI year in numbers

                        The PRI year in numbers

The PRI year in numbers | PRI Annual Report | 2009 |    7

85% of signatories have policies that                       ...
8   | PRI Annual Report | 2009 | The Clearinghouse

    The Clearinghouse

      The PRI Engagement Clearinghouse,
The Clearinghouse | PRI Annual Report | 2009 |   9

Driving change through
collaborating online

Through collaboration,...
10 | PRI Annual Report | 2009 | The Clearinghouse

“ The Clearinghouse enables individual
  signatories to transform on...
The Clearinghouse | PRI Annual Report | 2009 | 11

“ The Clearinghouse is an opt-in forum,
  and engagements are undert...
12 | PRI Annual Report | 2009 | The Clearinghouse

     Clearinghouse                                                 T...
The Clearinghouse | PRI Annual Report | 2009 | 13

The Investor view:                                                Th...
14 | PRI Annual Report | 2009 | PRI in Emerging Markets and Developing Countries

   PRI in emerging markets
   and dev...
PRI in Emerging Markets and Developing Countries | PRI Annual Report | 2009 | 15

16 | PRI Annual Report | 2009 | PRI in Emerging Markets and Developing Countries

 “The EM project has raised awareness...
PRI in Emerging Markets and Developing Countries | PRI Annual Report | 2009 | 17

   Brazil is the world’...
18 | PRI Annual Report | 2009 | PRI in other asset classes

       “The PRI Initiative is supporting signatories in a d...
PRI in other asset classes | PRI Annual Report | 2009 | 19

Beyond equities

20 | PRI Annual Report | 2009 | PRI in other asset classes

Integrating responsible investment
principles into private ...
PRI in other asset classes | PRI Annual Report | 2009 | 21

As one of Europe’s most established private equity         ...
22 | PRI Annual Report | 2009 | Implementation support

Further implementation
support services
In addition to the thre...
Implementation support | PRI Annual Report | 2009 | 23

Small Funds Initiative
Small funds often are very resource-cons...
24 | PRI Annual Report | 2009 | Implementation support

Financial aspects of the Initiative

       PRI voluntary cont...
Implementation support | PRI Annual Report | 2009 | 25

 Income and expenditure summary
26 | PRI Annual Report | 2009 | Looking ahead

Looking ahead

The PRI Initiative is uniquely positioned to make       ...
Looking ahead | PRI Annual Report | 2009 | 27

To sign up…

    If your organisation would like to become a
This report is printed on FSC certified 9lives
55 Gloss paper, consisting of 55% recycled
fibre from both pre and post-con...
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Principles of Responsible Investment Annual Report 09

  1. 1. Annual Report of the PRI Initiative 2009 The PRI is an investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact
  2. 2. n | PRI Annual Report | 2009 | Foreword from the Executive Directors of UNEP and the UN Global Compact Moving further into the mainstream In just three years the number This year marks the 80th anniversary of the great Wall Street Crash of 1929, and the public spotlight is again firmly fixed on the finance sector. of signatories to the Principles for The recent crisis has demonstrated that decisions made by financial Responsible Investment has soared institutions have implications for entire economies. Thus the work of the from 50 to 500, representing US$18 PRI Initiative to promote better risk management, transparency and good trillion of assets and 36 countries. This governance has never been more important. is a clear recognition by mainstream These efforts can help restore the trust and confidence in the markets that have been so badly damaged by the financial crisis. capital markets of the importance of Throughout the last year, PRI signatories have used their influence to help environmental, social and corporate improve the ESG performance of companies in the UN Global Compact, governance (ESG) issues to with shareholder engagements on issues such as disclosure, climate investment processes. change and water scarcity. Signatories also launched the largest ever recruitment drive for the UN Global Compact, writing to almost 9,000 listed companies urging them to participate. The UN Environment Programme Finance Initiative (UNEP FI) has continued its work in support of responsible investment, in particular through its Property Working Group, Asset Management Working Group and PRI in Emerging Markets project. Joint activities are underway to assess the importance of environmental externalities to investors’ portfolios. Also to explore how public financing mechanisms can be leveraged to promote institutional investment flows into climate change mitigation and adaptation. We also seek to bring a financial services and investor perspective to UNEP’s Global Green New Deal/Green Economy Initiative. The departure for both of these is that investing in a transition to a low carbon and resource-efficient economy has multiple benefits from combating climate change to catalyzing innovation and decent kinds of employment. Addressing sustainability issues is too big a task for any individual institution alone. These are collective action problems that need collective solutions. Achim Steiner Through the PRI Initiative, the investment community is taking its place alongside governments, corporations, consumers and civil society in a global effort to replace unsustainable, short-term thinking with long-term solutions. The United Nations is committed to being a full and determined partner in meeting this challenge. Achim Steiner Georg Kell Executive Director Executive Director United Nations United Nations Georg Kell Environment Programme Global Compact
  3. 3. Message from the Chairman | PRI Annual Report | 2009 | 1 Responsible investment more relevant than ever As the global financial crisis wiped billions from fund values, some thought the momentum gained by responsible investment in recent years would diminish. Some felt responsible investment was an ‘add on’ that would be jettisoned in tough times. One commentator suggested that the only shade of ‘green’ investors would now be interested in was the ‘colour of dollar bills’. These predictions have been proved wrong. Rather than these activities being undermined, this crisis has catalysed additional investor interest in responsible investment, with 160 new signatories – holding assets of over US$5 trillion– signing up to the PRI between October 2008 and Donald MacDonald May 2009. Responsible investment is now starting to be driven by asset owners, and when times get tough, investment managers get responsive to the needs of clients. It has been a year dominated by the Indeed, responsible investment is central to the recovery from this crisis. largest financial crisis in a generation, In March, 2009, the PRI Board released a statement on the financial and the need for a better and longer- crisis which called on investors to embrace the PRI as a robust term approach to investment framework to help the investment community avoid a repeat of the management has never been more mistakes that led to the downturn. This statement links the practices outlined in the PRI – enhanced analysis, active ownership, transparency urgent. Responsible investment – with the failures that led to this crisis. Rather than being an ‘add on’, offers the institutional investment responsible investment lies at the core of the solution. sector a clear path forward. The full impacts of the crisis will take years to play out, and as the world’s population and carbon emissions continue to rise, so does the task facing the responsible investment sector. There will surely be other bubbles and crises, including the emerging climate crisis. The PRI Initiative is committed to driving the types of changes in mainstream investment practices that will, at least, encourage the type of business and investment activities that will see them coming a bit earlier and seek to address emerging problems before they get out of hand. The PRI Initiative has seen tremendous growth, and in time, we hope that these practices will have a real impact on driving sustainable, long-term returns. Yours faithfully Donald MacDonald Chair of the Principles for Responsible Investment and Trustee, BT Pension Scheme
  4. 4. 2 | PRI Annual Report | 2009 | Contents Contents Foreword from the Executive Directors of UNEP and the UN Global Compact Moving further into the mainstream Inside cover Message from the Chairman Responsible investment more relevant than ever 1 About the report 3 The PRI year in numbers 4 The Clearinghouse 6 In numbers 6 Driving change through collaborating online 7 Case Study: Why we use the Clearinghouse 8 A window into Case Study: Clearinghouse in practice 10 PRI in Emerging Markets and Developing Countries 12 the PRI Initiative In numbers Moving into new markets 12 13 Case Study: Meeting a local need 15 PRI in other asset classes 16 In numbers 16 Beyond equities 17 Case Study: A view from the private equity industry 19 Further implementation support 20 Financial aspects of the Initiative 22 Looking ahead 24 To sign up 25
  5. 5. About the report | PRI Annual Report | 2009 | 5 About the report The Principles This annual report provides a summary of the The Principles for Responsible Investment were drafted by a group of the world’s largest institutional investors progress of the PRI Initiative over the year since and supported by a 70-person multi-stakeholder group of our last annual report (1 June 2008 to 31 May experts from the investment industry, intergovernmental 2009). It provides a window into the activities of and governmental organizations, civil society and academia. the Initiative, and how it is helping investors to It was a process coordinated by the United Nations improve corporate behaviour on issues such as Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact and the PRI Initiative itself was corporate governance, transparency, human launched in April 2006 at the New York Stock Exchange rights, climate change, and corruption. It also by the UN Secretary-General. highlights how the Initiative helps its signatories The six interconnected Principles aim to act a framework develop processes for incorporating ESG issues for global best practices in responsible investment. across a variety of investment processes. They are: We will incorporate ESG issues into investment At the heart of the PRI Initiative are the various work streams 1 analysis and decision-making processes. that support implementation, and this year’s report focuses on three of these: We will be active owners and incorporate ESG 2 issues into our ownership policies and practices. 1. Collaboration among investors through the PRI Clearinghouse We will seek appropriate disclosure on ESG 3 issues by the entities in which we invest. 2. The growth of responsible investment in emerging markets and developing countries We will promote acceptance and implementation 4 of the Principles within the investment industry. 3. The application of the Principles beyond listed equities. We will work together to enhance our We also include details of the PRI’s many other work streams. 5 effectiveness in implementing the Principles. The sister publication to this report, the PRI Report on We will each report on our activities and progress Progress 2009, details the work the signatories themselves 6 towards implementing the Principles. are doing to implement the Principles, highlighting, with concrete examples, how investment processes are being harnessed to enhance financial performance and deliver ESG outcomes. The PRI Initiative remains indebted to our UN partner agencies, UNEP Finance Initiative and the UN Global Compact, for their unwavering support for the PRI. We also thank all the signatories that participated in the activities of the Initiative throughout the year. The PRI is very much a community of investors working together with the UN partners. This report – and the Report on Progress 2009 – seek to showcase these efforts.
  6. 6. 6 | PRI Annual Report | 2009 | The PRI year in numbers The PRI year in numbers Growth of signatories and AUM this year Locations of PRI signatories: 36 countries From 362 signatories and US$14.778 trillion in April 08 to 538 signatories and US$18,087 trillion in May 09 600 20 500 18 Number of Signatories AUM ($tn) 16 400 14 300 12 200 M 8 8 08 Au 08 08 08 8 8 8 09 M 9 9 M 9 9 09 0 -0 -0 -0 -0 0 -0 0 -0 r- n- l- g- p- n- b- r- n- ay ct ov ec ar ay Ju Ap Ap Ju Se Ja Fe Ju O D N Total assets under management of signatories: US$18,000,000,000,000 Number of signatories up 24% to 77 from emerging markets or developing countries: Active signatories on the Clearinghouse (by number of proposals) CalPERS 21 AP1 3 Hermes 15 AP2 3 The Ethical Funds Company 15 Batirente 3 Nathan Cummings Foundation 11 Boston Trust Walden Asset Management 3 Amalgamated Bank 6 Creative Investment Research 3 Calvert 6 Domini 3 Insight Investment 6 Ethos 3 CalSTRS 5 IlMarinen 3 F&C 5 Phitrust Active Investors 3 Pax World 4 PGGM 3 USS 4 SHARE 3 NYCERS 3
  7. 7. The PRI year in numbers | PRI Annual Report | 2009 | 7 85% of signatories have policies that 34% of respondents said their make reference to responsible investment responsible investment commitments or ESG issues. were being translated into a plan of action to a large extent 63% of asset owners now include RI/ESG elements in contractual relationships with external managers. Percentage figures on this page based on consolidated and approximate results of respondents to the PRI Reporting and Assessment process 2009.
  8. 8. 8 | PRI Annual Report | 2009 | The Clearinghouse The Clearinghouse The PRI Engagement Clearinghouse, established in October 2006, is a world first for the investment community. It is a private online forum that enables PRI signatories to work together to seek changes in company behaviour, public policies or systemic conditions. The Clearinghouse enables individual signatories to transform one voice into the voice of many. In Numbers Total number of Clearinghouse postings since inception: 177 Number of Clearinghouse posts by month in year since last report Jun-08 7 Sep-08 4 Dec-08 3 Mar-09 14 Jul-08 4 Oct-08 8 Jan-09 5 Apr-09 12 Aug-08 2 Nov-08 3 Feb-09 6 May-09 9
  9. 9. The Clearinghouse | PRI Annual Report | 2009 | 9 Driving change through collaborating online Through collaboration, signatories can pool their resources writing a joint letter to one or more companies expressing and influence and achieve greater impact. The Clearinghouse concerns about an issue. These letters are often followed now has around three full time staff working to coordinating up by meetings between the investors and the company. investor collaborations. There are also public policy engagements, where investors come together to form a common view on an area of regulation or public policy, and then make those views Improving company behaviour known to the policy makers. Most engagements facilitated through the Clearinghouse The postings in the Clearinghouse can be split into are focused on improving company performance on ESG roughly five types: issues – a key aim of the PRI Initiative. But there have also been numerous Clearinghouse posts which bring investors n Single-contact engagements: Postings representing together to discuss emerging issues, engage with policy efforts to alert companies to an issue of investor concern makers or seek support for shareholder resolutions. or promote better corporate conduct in a particular area. These are most often joint letters, often targeting large This year, nearly two thirds of PRI signatories logged into the groups of companies. Clearinghouse, up from around half in 2007. 84 signatories have posted ideas for collaboration to the Clearinghouse since n Comprehensive engagements: More intensive its inception. This year’s Clearinghouse activities reached engagements, often involving investors engaging in almost 9,000 companies on four continents. The largest dialogue with companies over time, seeking specific single engagement was the ‘Seoul Initiative’, which saw improvements in corporate behaviour. a group of signatories worth US$5 trillion in assets write n Shareholder voting: Invitations to support or co-file to over 8,400 listed companies asking them to commit shareholder resolutions, or vote in a particular manner to the principles of the UN Global Compact. on resolutions, at company annual general meetings. n Public policy and systemic issues: Engagements with How does it work? regulators and other public policy-makers, and invitations to support various higher-level investor initiatives. Signatories can post ideas or proposals to the Clearinghouse, n Exploratory discussions: Postings that open up inviting others to collaborate. These postings may be as simple discussion on future collaboration ideas or which share as one investor asking others to join in a collaborative research, opinions and information from individual discussion of an emerging issue, or support a shareholder engagement activities. proposal at a specific company’s AGM. It could involve Number of companies sent at least one letter as a result of collaborative engagements organised through the Clearinghouse this year: 8,804 Number of companies that were the focus of multiple-contact engagements launched through the Clearinghouse this year: 52
  10. 10. 10 | PRI Annual Report | 2009 | The Clearinghouse “ The Clearinghouse enables individual signatories to transform one voice into the voice of many.” Breakdown of the types of postings to the Clearinghouse To use the PRI Engagement Clearinghouse, signatories this year develop a proposal for the engagement they would like to Exploratory Single-contact undertake, with details for how it would be conducted, discussions (15) engagements (5) expected outcomes, background information and any Comprehensive associated documents. Other signatories are alerted to engagements (13) the proposals through email updates, and they can choose 6% to participate, or simply peruse what peers are doing, using the forum as a learning platform. 19% It is important to note that the Clearinghouse is an opt-in 17% forum, and engagements are undertaken in the names of the investors themselves. Each engagement is led by one or more investors, with the PRI Secretariat providing Total administrative and organisational support. The Clearinghouse 13% 77 is simply a forum for investors themselves to work together in an efficient and effective manner on an issue they see as material and relevant to their portfolios. One of the tools used to discuss emerging issues and potential collaborations is the ‘webinars’. These online 44% seminars are held once or twice a month and in the last year have discussed issues such as climate change, oil sands, transparency and anti-corruption, labour standards and controversial weapons. Between June 2008 and May Public policy and Shareholder systemic issues (10) voting (34) 2009 webinars attracted an average of around 40 signatories. The webinars on ‘sustainable real estate’ and ‘water sustainability’ were the most popular, attracting 79 and 63 attendees respectively. Why we use the Clearinghouse: This year the Guardians have been involved in several collaborative engagements facilitated by the Clearinghouse The Guardians of New Zealand to tackle issues such as forced labour in Brazil, investment Superannuation (The Guardians) in Sudan and to asking listed companies to sign up to the UN Global Compact. These engagements were in line with our responsible investment policy and in all cases we felt we could be more effective by joining forces with other investors rather than going it alone. The appeal of the Clearinghouse is that it catalyses collaboration. It’s a system that allows pension funds like us to put some ideas forward, knock them around with our peers, and if we come to a common position, take action.
  11. 11. The Clearinghouse | PRI Annual Report | 2009 | 11 “ The Clearinghouse is an opt-in forum, and engagements are undertaken in the names of the investors themselves.” Getting engaged Below are some of the collaborative engagements facilitated n An engagement that encouraged major listed companies by the Clearinghouse in the past year. Details of the results in Singapore and Hong Kong to improve their corporate of these engagements can be found in the Report on governance and transparency in order to qualify for Progress, 2009 and the following section on the PRI in inclusion in the FTSE4Good index. emerging markets and developing countries. n Letters to listed companies asking them to commit n A collaboration launched in December 2008 to encourage to the UN Global Compact, resulting in more than some of the world’s largest companies to sign up to the 100 new signatories to the Compact, including General CEO Water Mandate, a UN Global Compact water Electric, PepsiCo, J.C. Penney and Merck & Co. sustainability initiative. n A collaborative engagement to promote better and n An ongoing engagement between a US$2.5 trillion more systematic ESG disclosure by emerging market coalition of investors and companies with operations companies, focusing on South Africa, Brazil, South in, or exposure to, Sudan – a country whose human Korea and India. rights record is a subject of growing public and n Letters from 36 PRI signatories, managing US$757 billion, political concern. to all S&P 100 companies asking for material information n A collaborative engagement to ensure companies that on how they protect and enhance labor rights for their are participants in the UN Global Compact honour their US employees. reporting requirements. In 2008, the engagement helped n An ongoing collaboration between ten investors from convince around one third of the 100 companies contacted North America and Europe to engage with financial to fulfil their reporting requirements. authorities regarding regulations on acting in concert. n A South American collaboration launched at the Brazilian stock exchange asking all listed Brazilian companies to supply information on how they monitor and prevent slave labour throughout their supply chain. For collaborative shareholder engagement to work, “The Clearinghouse is absolutely investors need the behind-the-scenes support that the Clearinghouse provides. For example, there needs to be core to what the PRI Initiative guidelines and procedures in place to manage, monitor does. The PRI has some big plans and measure the engagement and perhaps to translate materials. There also needs to be coordination of roles but it must take care to keep its to keep costs down. The Clearinghouse provides that foundations solid by continuing foundation and lets investors take it on from there. to nurture this important forum.” Previous collaborations such as an engagement to minimise inappropriate labour practices in the Brazilian iron and steel industry has resulted in significant changes, including new audit systems in a number of companies.
  12. 12. 12 | PRI Annual Report | 2009 | The Clearinghouse Clearinghouse The ESG issue in practice Around 3.5 billion people live in countries rich in oil, gas and minerals. With good governance, the exploitation of these resources can foster economic development and reduce poverty. However, when governance is weak, this process can fuel corruption and conflict – as happened most notably in Liberia in recent years. This poses a clear threat for companies in the extractive industries, which can become associated with the ill effects of weak governance and consequently suffer hostility from the local Case study and international community. Companies also risk having their contracts repudiated, as happened in Liberia when democratic elections brought an end to the civil war. Secrecy “Efforts of this kind begin to introduce compounds the problem, as local citizens have sound practices of fiscal governance, little idea how much wealth is being generated which will, in turn, help to stabilise from the resources that lie below their ground. societies, promote prosperity and benefit the investment climate for In 2002, in response to this, the Extractive all concerned.” Industries Transparency Initiative (EITI) was Karina Litvack, Head of Governance & Sustainable Investment, F&C announced as a coalition of governments, “We know that our position as leader companies, civil society groups, investors and in the steel industry brings unique international organisations created to strengthen responsibilities. In no places is this governance by improving fiscal transparency duty more pertinent to our operations and accountability in the extractives sector. than in the two EITI-Candidate countries of Liberia and Kazakhstan.” Mr. Lakshmi Mittal, Chairman and CEO, ArcelorMittal, 20 Jan 2009
  13. 13. The Clearinghouse | PRI Annual Report | 2009 | 13 The Investor view: The Company view: F&C Asset Management ArcelorMittal As a strong supporter of the PRI, F&C believes companies At ArcelorMittal we consider transparency, quality of disclosure stand to benefit commercially from a prudent, far-sighted and clear communication with shareholders to be among the approach to sustainability and therefore engages with the most important aspects of good corporate governance. companies in its clients’ portfolios to promote improved We believe our responsible business practices help create practices where appropriate. Our interaction over the last shareholder value, and in November 2008 we held our first four years with mining and steel company ArcelorMittal roadshow specifically focused on responsible investment. (formerly Arcelor) illustrates this approach. This gave us the opportunity to present, and test, a recently- As a founder and active supporter of the EITI, F&C asks revised CR strategy to over 30 European fund managers companies to promote adoption of the Initiative. Where they and analysts. have operations in EITI-supporting countries, we ask them to From the roadshow it became apparent that a key issue of assist in its successful implementation, and publish audited concern for a number of investors was the EITI. A particular statements of the taxes, royalties and bonuses they pay to country of focus was Liberia, which has been devastated by governments, who should simultaneously publish audited years of civil war and where attracting responsible foreign statements of the revenues they receive. By shining a investment is vital for urgent reconstruction requirements and spotlight on these vast payment flows and allowing potential long-term development. Since May 2007 ArcelorMittal Liberia discrepancies to come to light, the EITI helps deter corruption – the first major foreign investor in the country since the civil and mismanagement in resource-rich countries. war – has been an active member of the local Liberian EITI, F&C encouraged ArcelorMittal to become an active and a formal Group-wide commitment was on the horizon. supporter of the EITI, and in particular to help facilitate the However, an urgency to make a full commitment, or indeed Initiative’s operational success in the key countries of promoting a wide knowledge of the initiative throughout Liberia and Kazakhstan, where it is a major player. the Group, was at the time not a key priority. In addition to raising the issue with the company in one-to- However, a number of investors, particularly F&C one meetings, F&C also spearheaded a PRI Clearinghouse Management, were able to articulate why it was important initiative on the issue that attracted the support of 25 fellow for us to make the further commitment. This feedback signatories. With the support from these signatories, F&C gave strength and weight to our internal approach, using wrote to ArcelorMittal’s CEO, Lakshmi Mittal, to focus his this investor dialogue internally to engage and educate attention on Liberia and Kazakhstan. The response to these senior management on the EITI’s importance and value, efforts arrived in early 2009 with the company’s decision and ultimately hastening the process of formalising to become the 40th company to endorse the Initiative. our commitment.
  14. 14. 14 | PRI Annual Report | 2009 | PRI in Emerging Markets and Developing Countries PRI in emerging markets and developing countries The PRI in Emerging Markets and Developing Countries Project (PRI in EM) works with investors to encourage better management of ESG issues in these markets in order to both enhance investor returns and drive sustainable development. PRI in EM is funded by the Swedish International Development Agency and managed by UNEP Finance Initiative. In Numbers Growth in PRI Emerging Market signatories since May 08: by 24% to 77 Total participants at PRI outreach workshops in nine countries: 500+
  15. 15. PRI in Emerging Markets and Developing Countries | PRI Annual Report | 2009 | 15 “This year, for the first time, the Moving into PRI in EM project established PRI country networks in Brazil, new markets South Korea and South Africa.” Going global In the last year, the project has raised awareness a. Reaching hundreds of investors about responsible investment with investors Over the course of 2008 and early 2009, the project has focused on emerging markets where there is currently little across four continents and signed up many new or no responsible investment awareness or PRI presence. signatories. The project also aims to help PRI This year, the PRI in EM Project presented at over 25 signatories to encourage responsible business responsible investment outreach workshops and mainstream practices in developing countries. investment conferences in countries including Russia, Austria, Indonesia, Malaysia, Singapore, Thailand, Brazil, Ecuador, The PRI in EM team has provided translations Egypt, South Africa and United Arab Emirates. Initial meetings were also held with investors and relevant of several PRI publications including the PRI stakeholders in India, Israel and Turkey ahead of planned brochure, monthly newsletter for signatories workshops there in 2009/2010. and the PRI Reporting and Assessment tool b. Providing implementation support to signatories alongside other implementation support. This year, for the first time, the PRI in EM project established PRI country networks in Brazil (see next page), South Korea and South Africa. The goal of these networks is to bring PRI signatories together in these markets to support them with implementing the Principles and address material ESG issues in the local context. In Korea and Brazil, local network coordinators were recruited to coordinate joint investor activities locally and translate PRI materials. Number of emerging markets engaged through PRI outreach activities: 13 PRI signatory implementation networks launched in Brazil, South Korea and South Africa.
  16. 16. 16 | PRI Annual Report | 2009 | PRI in Emerging Markets and Developing Countries “The EM project has raised awareness about responsible investment with investors across four continents and signed up many new signatories.” Contributing to Clearinghouse activities in emerging markets A number of Clearinghouse activities have also been of the PRI Clearinghouse, additional investors have joined supported through the PRI in EM project. Investor the EM disclosure project focusing on promoting greater collaborations in emerging markets over the last year have sustainability disclosure by Indian and Russian companies. included a major engagement with Brazilian companies Regular emerging market webinars have proved an listed on Bovespa (the Brazilian stock exchange) aimed at important tool in encouraging informal collaboration and eradicating slave labour in Brazil, an engagement on labour dialogue on responsible investment in emerging markets. rights with construction companies in the Middle East, As well as discussing some of the engagements listed above, collaborations regarding forced child labour in Uzbekistan, this year’s topics have included integration of ESG issues in investor dialogue with companies operating in Sudan, and emerging markets, active ownership in emerging markets, asking companies to participate in the UN Global Compact. RI in conflict-afflicted countries, infrastructure investment The Emerging Markets Disclosure Project, which has been opportunities in developing countries, and the launch of supported through the Clearinghouse since 2007, has the pan-African SRI Index. Between 40 and 70 investors become a major work stream across four countries. This from around the world join these webinars each month. project brings investors together to engage listed companies in emerging markets to encourage greater systematic disclosure c. Finding solutions to systemic problems of ESG performance. As part of this project, PRI in EM was In April 2009, the PRI Initiative in collaboration with UNEP involved in developing a survey to assess current ESG Finance Initiative officially launched the Universal Owner practices applied by investors when investing into emerging project (see below) which aims to demonstrate a clear markets. Results of this survey will be published in mid-2009. financial and economic rationale for collective shareholder In South Africa, there are ongoing engagements with engagement on issues related to economic externalities companies that either fell off of or did not qualify for the (i.e. an impact from an economic transaction which affects JSE SRI Index in 2008. In Brazil, a workshop is being parties not involved in the transaction itself). The PRI organised to bring investors and companies together to Initiative has appointed Trucost to conduct the first stage discuss corporate sustainability reporting. With the help of this project with the results due in late 2009. Universal owner, universal solutions? PRI signatories collectively represent more than US$18 together to improve the performance of the economy trillion in assets. Given the size of many PRI signatories and (through addressing externalities) as a whole. Indeed this the extent of their diversification, returns to these funds is an important part of fulfilling their obligations to their (and PRI signatories overall), are more closely correlated members, beneficiaries, clients and customers. with the performance of the economy as a whole than to The aim of the PRI/UNEP FI Universal Owner project is to any particular company or sector. Therefore by investing explore how the most economically harmful ESG externalities broadly in capital markets, these funds ultimately internalise involving corporations can be identified and then reduced both negative and positive externalities that are generated through collaborative shareholder engagement by the by companies and their ESG practices. This ‘universal owners of these corporations. Externalities to be analysed ownership’ combined with the long-term horizons of many will likely include greenhouse gas emissions, degradation of investors provides a strong rationale for investors to work ecosystem services, pollution and unsustainable resource use.
  17. 17. PRI in Emerging Markets and Developing Countries | PRI Annual Report | 2009 | 17 Background Brazil is the world’s tenth-largest economy, with the country’s 278 pension funds holding combined assets of about Meeting a US$185 billion. The PRI Brazil Network was launched in November 2008 in response to strong signatory demand for local need a local Portuguese language platform. The Network helps Brazilian signatories to put the Principles into practice and collaborate on a range of ESG issues. PREVI, the largest pension fund in Brazil, has taken a lead in managing this network, which has now created three working The PRI Brazil groups on ‘engagement’, ‘recruitment’ and ‘integration’. Network Engagement group The main focus of this group is to use investor influence to improve the quality of corporate sustainability reporting in Brazil – in particular to engage with those companies that do not report at all or have poor disclosure of ESG performance. The group works closely with the Global Reporting Initiative (GRI) in Brazil. The group also supports engagements on issues such as eliminating slave labour in the supply chain and ESG performance in the construction and agribusiness sectors. Case study Integration group Recruitment group This group works to share methodologies for integrating The aim of this group is to promote responsible ESG issues into investment analysis in the Brazilian context. investment among investors that are not yet The goal is to create a common methodology for integrating PRI signatories. To facilitate recruitment and ESG issues into valuations in ways that can be applied by implementation, the PRI Secretariat is working all Brazilian signatories. This process will include the on overcoming the language barrier by making identification and selection of those ESG indicators that key PRI materials available in Portuguese. For are most relevant and material for investors in Brazil. example, there is now a Portuguese ‘sign-up kit’, that contains key information about the PRI. The three steps of the PRI/UNEP FI Universal Owner Project Step 1: Identify and prioritize economic externalities “The Brazil Network was related to corporate behaviour, that, if addressed, could have a positive impact on the economy. launched in response to Step 2: Model the impact of these externalities on a strong signatory demand hypothetical, highly diversified portfolio, and for a local Portuguese demonstrate the financial benefits institutional language platform.” investors could derive if these externalities were internalised over the long term. Step 3: In collaboration with leading practitioners, develop concrete shareholder engagement strategies to act on these externalities.
  18. 18. 18 | PRI Annual Report | 2009 | PRI in other asset classes “The PRI Initiative is supporting signatories in a dialogue on responsible investment in other asset classes, focusing initially on property and private equity.” In Numbers Number of signatories with predominately private equity or venture capital activities: 29
  19. 19. PRI in other asset classes | PRI Annual Report | 2009 | 19 Beyond equities Providing guidance materials for responsible property investment Many PRI signatories invest across a broad set of The UNEP FI Property Working Group (PWG) and the PRI have continued to collaborate on responsible property asset classes. Consistent with their commitment investment following the release in early 2008 of a as PRI signatories, signatories are now looking at guidance document on implementing the PRI in applying responsible investment policies beyond property portfolios. their listed equities portfolios into property, private Recent PWG work has included an article distributed to equity, fixed income and even hedge funds. all PRI signatories to articulate the key differences between responsible investment in equities and in property. This The PRI Reporting and Assessment process this year revealed practical note focuses on factors unique to property as the scale of the challenge of applying responsible investment an asset class (such as tenancy rights) and aims to help across all asset classes, with a large number of signatories investors understand the unique discipline of responsible stating they do not yet integrate ESG issues beyond listed property investing. equities. While there are now a small number of responsible In 2009-10, the PWG will release a series of toolkits fixed income and hedge funds products available, just under designed to offer practical guides to help further embed half of all signatories stated that they do not integrate ESG responsible property investing in daily institutional practice. issues into these asset classes at all at this point. The first toolkit, Committing and engaging, was released To help tackle this challenge, the PRI Initiative is supporting in the second quarter of 2009. Other projects in the signatories in a dialogue on responsible investment in other pipeline include a report on tenant engagement strategies asset classes, focusing initially on property and private equity. and best practice, as well as activities related to global The property work is led by the UNEP FI Property climate change policy. Working Group. AUM of PE signatories: US$226.78 billion AUM of pure-play property fund signatories: US$28.1 billion
  20. 20. 20 | PRI Annual Report | 2009 | PRI in other asset classes Integrating responsible investment principles into private equity The PRI’s private equity steering committee has brought In July 2009, the PRI Initiative also published Responsible together investors (limited partners), private equity houses Investment in Private Equity: A Guide for Limited Partners (general partners) and trade associations to provide guidance to help PRI signatories apply the Principles to their PE to limited partners and raise awareness on ESG within the allocations. This toolkit helps Limited Partners to develop general partner community. their own approaches at both the pre-investment (due diligence and legal documentation) and post-investment A major step-change came in February, when members of stages (monitoring and engagement). Future Reporting the Private Equity Council (PEC) adopted a set of guidelines and Assessment processes will help the PRI Initiative assess on responsible investment. The PEC membership includes 13 whether this Guide has helped signatories integrate ESG of the world’s largest buy-out groups. The guidelines, which into their private equity investments. cover environmental, health, safety, labour, governance and social issues, were developed by the PEC after a dialogue with the PRI’s private equity steering committee. The PRI committee and PEC will meet twice annually to discuss the guidelines and their implementation. Other national associations, including the British and Australian venture capital and private equity associations, have now established Responsible Investment working groups. As the sector has recognised the importance of ESG issues to investment and corporate performance, we have also seen a number of high profile private equity firms sign up to the PRI including Kohlberg Kravis Roberts & Co LLP, Abraaj Capital, Cinven, Actis and BC Partners. “A major step-change came in February, when members of the Private Equity Council adopted a set of guidelines on responsible investment.”
  21. 21. PRI in other asset classes | PRI Annual Report | 2009 | 21 As one of Europe’s most established private equity A view from managers, Doughty Hanson has spent the last few years developing the tools and resources to the private implement our engagement across a range of ESG issues. A significant milestone in our emerging equity industry ESG strategy took place in June 2007 when we became one of the first private equity managers to sign up to the PRI. Doughty Our decision to become a signatory was rooted in our belief that the PRI provided a practical framework to help Hanson us better understand the full opportunity set for our various responsible investment initiatives. Our interactions with PRI staff and other signatories have helped us across the full spectrum of ESG engagement and were particularly useful when we were developing the text for our ESG policy. Another tangible benefit of being a signatory has been the annual PRI Reporting and Assessment survey. The online Case study questionnaire may be a little daunting to complete, but it provides an opportunity for Doughty Hanson to perform a comprehensive annual ESG audit, helping us identify the steps we have already taken and, more importantly, the work we still need to carry out to fully integrate responsible investment into our investment analysis and ownership practices. As part of our commitment to the PRI, Doughty Hanson sit on the PRI’s Private Equity Steering Committee which promotes greater awareness of the role of ESG within private equity. The work the committee undertakes provides an invaluable collaborative forum for discussion between asset owners and managers to tailor PRI best practice within a private equity context. The recently published Responsible Investing in Private Equity: A Guide “Our decision to become a for Limited Partners is just one notable example of the type signatory was rooted in our of practical work that the PRI can help produce. belief that the PRI provided a practical framework to help us better understand the full opportunity set for our various responsible investment initiatives.”
  22. 22. 22 | PRI Annual Report | 2009 | Implementation support Further implementation support services In addition to the three programmes profiled – This exercise is not without its challenges. Some signatories feel it is too prescriptive, while others feel it should do more the Clearinghouse, the PRI in Emerging Markets to hold signatories to account. The PRI Secretariat, working Project and PRI in other asset classes – there are with the Assessment Working Group and incorporating several other work streams of the PRI that offer feedback from many signatories, has attempted to strike support to signatories in their implementation a balance by developing what we believe is a useful learning and accountability tool while keeping the of the Principles. reporting burden manageable. The process was enhanced in 2009 through one-hour PRI in Practice knowledge base verification calls with 100 signatories. These calls are not Signatories to the PRI are very diverse – regionally and in purely for verification of responses, but are also a chance to terms of investment styles – so there can be no one-size- discuss emerging responsible investment approaches with fits-all approach to implementing the Principles. PRI in signatories, provide general feedback about where things Practice provides signatories with a library of high-quality are heading, and identify best practices or interesting and practical advice on how to integrate ESG issues into challenges that can be featured in PRI in Practice. Ideally, their day-to-day business. all signatories will have a verification call with PRI staff once every three years. With so many potential avenues to explore, the site has not yet covered the whole spectrum of implementation activities For the full Report on Progress 2009 visit across all asset classes. However, it is emerging as one of the world’s leading resources on responsible investment implementation and now contains best-practice cases studies, interviews and examples from over 50 signatories. In addition Enhanced Research Portal to written documents, the site also features podcasts and Most investment decision-making in the world today relies, videos of signatories speaking about their own experiences to some extent, on sell-side and other specialist research in implementing responsible investment. There is also a providers. However, the supply of high-quality research on calendar of responsible investment events. ESG issues, appropriate for mainstream fund managers, remains patchy, particularly in markets that are not as PRI in Practice is hosted on a password-protected site and familiar with responsible investment. is available only to signatories. The PRI Enhanced Research Portal (ERP) is an attempt to PRI Reporting and Assessment tool help remedy this problem by broadening the work of the Enhanced Analytics Initiative and taking it to a wider, global The PRI Reporting and Assessment process is one of the audience through the ever-growing PRI signatory base. most important activities of the Initiative. It is an annual, online questionnaire that all investor signatories must For signatories, the ERP will make it easy to find out what complete. The responses are analysed and the results sent ESG research is available in different markets around the out individually to each signatory. The tool provides a way world from a variety of providers. For brokers and for signatories to measure progress against their peers and independent research providers, it provides an opportunity learn from each other. The process also provides signatories to showcase their research to a greater audience, and with easy way to report on their responsible investment therefore, potentially more clients. practices, thereby fulfilling Principle 6. The aim of this simple portal is therefore to significantly The Reporting and Assessment process also enables the improve the quality and availability of ESG research. PRI Secretariat to identify and showcase best practices from Increased use and demand for ESG research should within the signatory body, which can then be reflected back help drive better investment decisions. though implementation resources. The aggregated results of the assessment are featured in the annual Report on Progress, which is published alongside this document.
  23. 23. Implementation support | PRI Annual Report | 2009 | 23 Small Funds Initiative Small funds often are very resource-constrained, and this is particularly the case for responsible investment activities. However, it is still possible for small and resource-constrained funds to be responsible investors, particularly where they pool their resources, and work together. The PRI Small Funds Initiative was established to support the needs of these funds, and a dedicated staff member of the PRI Secretariat has been recently allocated to this work stream. It aims to provide implementation guidance to small fund signatories, to increase their ability to participate in shareholder engagements and to examine the potential for pooling resources to secure cost-effective services (eg voting, engagement, ESG research) that, to date, have only been available to larger funds. PRI on YouTube As of 2009, videos are available of signatories discussing a range of issues around PRI implementation. Seven short videos are currently hosted on the PRI channel and have already garnered over 2,000 viewings. PRI on YouTube Visit: PRI Academic Network The first PRI Academic Network conference was held in September 2008 in partnership with the European Centre for As part of broader efforts to increase knowledge about Corporate Engagement (ECCE) in Maastricht, Netherlands. responsible investment practices, the PRI Academic PRI signatories and top academics from around the world Network works to strengthen cooperation between came together to present research papers focused on signatories and the academic community. responsible investment. The next conference in September With a membership of 230 academics, investment 2009 will be co-hosted by Carlton University in Ottawa, practitioners and policy makers, the PRI Academic Network Canada. The 2009 conference will be supported by a special represents a diverse array of research interests from around edition of an academic journal on responsible investment. the world. The network aims to provide implementation In May 2009, the PRI and the Danish Government’s Centre support to PRI signatories through promoting and funding for CSR (CenSa) formed a strategic partnership to develop research and events that generate practical and relevant the PRI Academic Network and further drive practical responsible investment research. The PRI Initiative also research on responsible investment. This joint venture will contributes to the development of future generations of combine efforts and take forward the agenda of the Danish scholars and practitioners, co-hosting the Young Scholars Government’s 2008 Princeton Conference on responsible Finance Academy in partnership with the Swiss-based investment. A core component of this will be the funding oikos Foundation. of research prizes in 2010 for papers of excellence.
  24. 24. 24 | PRI Annual Report | 2009 | Implementation support Financial aspects of the Initiative PRI voluntary contributions were US$ 1,083,530 in 2008-2009. This reflects the growth in numbers of signatories and a small increase in the proportion who contribute. Contributions were made by 165 signatories, or 32% of the total, compared with 25% in 2007-2008. We warmly thank those signatories for their continuing financial support of the PRI. PRI Voluntary contributions Year Amount Signatories Signatories contributing 2006-07 US$ 340,000 181 50 2007-08 US$ 710,000 331 88 2008-09 US$ 1,083,530 505 165 The financial crisis did not appear to affect signatory Continued growth in contributions, backed by our reserves, contributions in the 2008-2009 financial year, as most has given us the confidence to carefully expand operations contributions came in before October 2008. It is too early and hire extra people including two Clearinghouse staff, a to assess the impacts of the crisis on 2009-2010 but early communications manager and a number of other project signs are reassuring. and support staff. Long-term budgeting within the context of voluntary The 2008-2009 budget was based on expected income of contributions is challenging. For this reason, we have used US$775,000. Our year end expenditure totalled US$654,348. conservative projections of income to plan our expenditure. About 15% of the originally-planned expenditure has been We have also sought to build up a financial reserve as quickly carried over to 2009-2010. as possible, to provide a buffer to protect the initiative from unforeseen events. Our long-term policy is to maintain a reserve which will provide sufficient funding for six months operations.
  25. 25. Implementation support | PRI Annual Report | 2009 | 25 Income and expenditure summary Actual¹ 2008/09 Budgeted 2009/10 Income Voluntary contributions 1,083,530 1,077,000 Grants 40,042 196,416 Event income 68,568 65,625 Interest 3,934 2,925 Total income 1,196,074 1,341,966 Expenditure Management and overheads 328,435 643,295 Implementation support² 151,568 717,536 Signatory relations 15,154 188,960 Recruitment 159,191 177,432 Total expenditure 654,348 1,727,223 Contingency³ 259,084 Forecast total expenditure 1,986,308 Surplus/(deficit) for the year 541,726 (644,342) Reserves Opening 541,079 1,082,805 Closing 1,082,805 438,491 Notes 1 Still subject to audit 2 Includes clearinghouse, PRI in Practice, the workstreams 3 Budgeted at 15% of expenditure 2009-10 The main challenges ahead include financing the expanding closely and maintaining a healthy level of reserves (budgeted work programme, securing long-term financial security, and at US$438,491) going forward which is in line with the managing currency exposures. Our strong reserves policy initiative’s reserves policy. We will, of course, slow down means we are in a good position to weather any difficulties expansion if the financial position of the initiative is not arising from the current financial crisis and can continue as strong as projected. to expand the work programme. We will be focusing on delivering high-quality implementation We are projecting a substantial deficit of US$644,314 support services to signatories. In particular, this means a for 2009-2010. This is due to our decision to invest in the stronger direct focus on implementation support, including 2009-2010 expansion of the work programme as part of the Clearinghouse, PRI in Practice, and other work streams, the PRI five-year strategy. We can fund that by drawing which will account for 42% of our planned expenditure. It on previously built-up reserves. We will be monitoring this also allows us to increase our activity in signatory relations and dedicated IT tools.
  26. 26. 26 | PRI Annual Report | 2009 | Looking ahead Looking ahead The PRI Initiative is uniquely positioned to make The PRI will also provide a platform for investor engagement with the public policy community, with the establishment of a huge impact in the investment industry globally the Public Policy Network, a group of public policy makers in the future, thanks to the backing it has from a who recognise the potential for investors to contribute to large number of mainstream institutional asset public policy goals. owners and managers, and the legitimacy that There will be a greater emphasis on Principle 6, and the comes with its United Nations support. But the transparency of signatories’ responsible investment activities. The Reporting and Assessment process is also a key priority, potential of the PRI Initiative as a real driver of as it is the main tool for understanding and responding to change within the industry globally and across all the needs of signatories, identifying best practices, and asset classes has yet to be fully realised. There are developing training materials based on signatories’ needs. This process also underpins the credibility and legitimacy still many areas of the world, and many parts of of the Initiative and will ensure that the PRI remains an the investment industry generally, that are yet to initiative that signatories are proud to be associated with. take up the responsible investment challenge. In summary, we expect significant growth of the PRI Initiative in coming years, and look forward to providing In early 2009, the PRI Board and Secretariat set out to an increasing variety and quality of implementation develop a vision for the PRI Initiative over the next five years support activities across a much wider set of responsible to take the Initiative to a new level of professionalism, service investment approaches. and coverage. It is proposed that the Initiative become the global hub of responsible investment collaboration, best practice, capacity building and outreach, seeking to cover – with concrete implementation support – all regions with established capital markets, and the gamut of asset classes and responsible investment approaches. Where appropriate, this expansion would be done in collaboration with partner organisations, particularly those with local knowledge. It will have an in-house ESG think tank supporting the Clearinghouse, and provide a network for investment professionals, economists, service providers and issue specialists to identify the most important ESG issues, and then develop concrete collaborative investor activities to address them. It will have comprehensive implementation resources to help investors integrate ESG issues into all relevant areas of their portfolios. The focus will remain on higher-level, systemic issues such as universal owner issues, which no individual company can make a strong business case to address.
  27. 27. Looking ahead | PRI Annual Report | 2009 | 27 To sign up… If your organisation would like to become a signatory then please visit or email for further information. A letter signed by a CEO or equivalent is needed that contains the following: n A statement confirming your organisation’s approval of the Principles, reasons for your decision and the expectations you have from becoming a PRI signatory n For asset owners and investment managers, a commitment to take part in the PRI’s annual Reporting and Assessment process. n A description of your organisation, approximate assets under management and the category of signatory applicable. n Full contact details of your main PRI contact. Our UN partners United Nations Environment Programme Finance Initiative UN Global Compact (UNEP FI) Launched in 2000, the UN Global Compact brings business UNEP FI is a unique public-private partnership between together with UN agencies, labour, civil society and UNEP and the global financial sector. UNEP works with governments to advance ten universal principles in the over 170 banks, insurers and investment firms, and a range areas of human rights, labour, environment and anti- of partner organisations, to develop and promote linkages corruption. Through the power of collective action, the between sustainability and financial performance. Through its Global Compact seeks to mainstream these ten principles in comprehensive work programme encompassing research, business activities around the world and to catalyze actions training, events and regional activities, UNEP FI carries out in support of broader UN goals. With more than 5,200 its mission to identify, promote and realise the adoption of participating businesses from over 130 countries, it is the best environmental and sustainability practice at all levels world’s largest voluntary corporate sustainability initiative. of financial institution operations. More at: More information:
  28. 28. This report is printed on FSC certified 9lives 55 Gloss paper, consisting of 55% recycled fibre from both pre and post-consumer sources, and 45% FSC certified virgin fibre from well managed forest. Designed by sherry